You may recall that back in 2003 HUD instituted a regulation stating that FHA would not insure a mortgage if the seller had owned the property for less than 90 days before signing a purchase and sale agreement with a new buyer. Then in 2006 they updated the regulation, making it even more restrictive. This was commonly known as the “Anti-flipping Rule.”
The purpose of the regulations was to put a halt to a predatory lending practice that HUD believed involved artificially inflated values resulting from a lender’s collusion with an appraiser. There were a few exceptions, such as REO properties, inherited homes, and homes purchased by relocation companies, but sales between individuals were severely restricted under the regulation.
Restrictions and red-tape applied for up to 12 months after an individual purchased a home, and “flipper” became a dirty word.
Then came the downturn in the housing market, which resulted in thousands of foreclosed homes sitting vacant. In an effort to stabilize communities hard-hit by the foreclosures, HUD reversed its position.
On May 21, 2010, HUD announced a temporary waiver of the regulation. Vacant, unmaintained homes do reduce neighborhood values, so the purpose was to encourage investors to purchase, renovate, and re-sell those homes as quickly as possible.
The waiver has since been extended twice and was set to expire on December 31, 2012 – but has now been extended once again. This time, the waiver is in effect through December 31, 2014.
What does it mean to you as a real estate agent?
With only a few exceptions, your buyers can purchase a home with FHA financing, even if the seller acquired the home less than 90 days before your closing.
Three primary conditions must be met for eligibility:
1. It must be an arm’s length transaction – with no “identity of interest” between the buyer and the seller or any other parties participating in the transaction.
2. If the sales price is more than 20% above the seller’s acquisition cost, the increase must be justified either through:
a. Documentation of seller’s acquisition costs, plus cost of renovation, repair, and rehabilitation work.
Justification can also be accomplished through a second appraisal, performed by an FHA appraiser working in compliance with all FHA appraisal reporting requirements.
b. An appraisal which provides appropriate explanation of the increase in property value – accompanied by a comprehensive property inspection provided by an inspector with no interest in the property and no relationship with the seller.
Additionally, the inspector must not give or receive any referrals related to the inspection, nor may the inspector be involved in performing any repairs recommended by the inspection.
3. It must be a “forward mortgage” – reverse mortgages are not eligible for the waiver.
You may have heard…
I’ve heard this rumor, so you probably have too. It says: “Sure FHA approves, but no banks or lenders are going along with it.”
The truth: Perhaps some lenders shy away, but I don’t. I’ll be pleased to help you get your buyers into their new FHA insured home – no matter how long the seller has had possession. Send them in to become pre-approved, so we can move swiftly when they find that dream home.